Human Capital Outlook

Loss of institutional memory with your CEO quitting?

There are a few essentials in running a large & complex enterprise in this fiercely competitive business environment- leadership is probably the highest in the pecking order. And if having exceptional leadership is the strongest factor in the continued success of an organization, effective succession planning is the tool to ensure the continuity of the former. For a smooth functioning of any enterprise, leaders must be readily available and be in a position to assume critical roles as and when they fall vacant due to voluntary or involuntary separations. Succession planning therefore is like a relay race, one has to pass on the duty & obligations to the next in command, with a minimal lead time.

Globally, companies are focusing at actively deploying a succession management process which is linked with the business strategy of the company. This helps to define evaluation criteria’s, identify top leaders & also develop them. And most of them are reaping huge dividends from the process- firstly, by identifying potential candidates & developing them, an ongoing supply of well trained & motivated people is maintained. Thus, leadership talent gets in alignment with the business needs of the company. Secondly, defined career paths help the company position itself well to attract & retain top talent.

Have the boards at Indian organizations put the case for succession planning seriously? Have they analyzed the risk their organizations face due to leadership gaps & the consequent loss of institutional memory? The answer is No. They seem to be working in short term perpetuities, ignorant of the ramifications lack of such a succession planning strategy could have on the long term success of their respective firms.

Most progressive Indian companies today do a fine job of preparing for "what-if" scenarios when it comes to financial capital, but they have not evolved to include human capital as well. Such companies tend to be personality driven, as against principle- and process-driven. They are unable to look beyond the 3 or 5 year horizon. Succession planning is not relatively straightforward in such companies. Are these companies built to last?

We find that even the most successful Indian companies only now have begun to realize that the board & CEO have to build more than a ‘happenstance’ approach to succession planning. The primary reasons for this shortcoming: limited & deficient understanding of the external talent situation, ineffective benchmarking and an over-reliance on subjective evaluations of potential successors, if at all any.

The CEO must see succession planning as his or her most fundamental leadership responsibility. Unfortunately, in many cases, we find that ego drives CEOs who cannot accept the fact that succession is as important as a good management in the long-term success of the company. Many just cannot give up the power gracefully, and like an aging athlete, often stay till they’re ultimately asked to leave! The author knows of one professional CEO who has not been able to find a suitable successor for the past eight years & continues to operate well beyond his retirement age. What role has the board been playing all these years? Is it actually acting in the best interests of the company?

Again, most major career advancements for the second & third tier to the CEO have traditionally occurred as a result of relationships and personal comfort, not organizational design, even though the latter is the intent. CEOs often perpetuate these practices when they hire externally or rejig internal talent.

The loss of institutional memory is an irreparable damage in today’s business; this definitely gets aggravated with increasing scale, complexity of business & multiple stakeholder expectations, not to forget the merciless stock market.

A close analysis of Indian companies’ leadership suggests that a majority of them are either promoter driven or have strong business operations links with the promoter’s family- examples abound and dot the entire corporate landscape in India.

Succession planning is the trickiest in organizations such as these. While the separation of ownership & management is a related & important decision which several progressive Indian companies have already made, a vast majority still continue to mix ownership considerations with management & operating principles. Many such business houses have resulted in devastating results for their stakeholders & often such factors lead to unfortunate or even calamitous situations as we’ve seen in cases where impartial sources were required to mediate between warring brothers. While it may seem like difficult, promoter driven organizations could still ensure an efficient succession planning mechanism which can prevent such occurrences. Clear succession planning results in objective,   unambiguous guidelines and goals for each member in such family driven companies.

Businesses that hesitate in taking proactive steps to plan for leadership succession could face disastrous results by searching inoptimally to find appropriate candidates to fill leadership voids once the voids have been created. It is an irony that in most cases where there is no or ineffective succession planning, leaders operate & think in eternal terms. CEO longitivity & succession planning are not incompatible; they go hand in glove for a smooth functioning of management.